As a UK limited company, you are required by law to prepare and submit annual financial statements, also known as “statutory accounts”, to Companies House and HMRC. Failure to do so can result in penalties, legal action and a damaging impact on your business reputation.
So, what are statutory accounts, and why preparing statutory accounts are important?
What are Statutory Accounts?
Statutory accounts are financial statements prepared by companies to comply with the Companies Act 2006, the UK accounting standards, and other relevant legislation. These accounts provide an overview of a company’s financial performance, position, and cash flows for a given accounting period. The statutory accounts are also called, “year-end accounts or year-end statutory accounts”.
The statutory accounts consist of the following elements:
1. Balance Sheet: It shows the company’s assets (including fixed, current and intangible assets), liabilities (long-term and current liabilities), and equity at the end of the financial year.
2. Profit and Loss Account: It shows the company’s revenue, costs, and profits or losses for the financial year.
3. Cash Flow Statement: It provides information on the company’s cash inflows and outflows during the financial year.
Why do UK Limited Companies Need Statutory Accounts?
Statutory accounts serve several purposes. Firstly, they provide transparency and accountability to shareholders, investors, and stakeholders regarding the company’s financial performance. Secondly, they are used by HMRC to calculate and verify a company’s tax liability. Thirdly, they are used by lenders, suppliers, and potential investors to assess a company’s financial health.
There are two UK accounting standards under which statutory accounts can be prepared:
1. FRS 105: Micro-entities
FRS 105 is a simplified accounting standard designed for micro-entities, small businesses that meet two of the three following criteria: turnover of no more than £632,000, balance sheet total of no more than £316,000, and no more than ten employees.
FRS 105 allows micro-entities to prepare simplified financial statements with reduced disclosure requirements. This means that micro-entities do not have to provide detailed information on their financial performance, and the accounts do not have to be audited.
2. FRS 102 1A: Small Companies
FRS 102 1A is an accounting standard designed for small companies that do not qualify as micro-entities. Small companies are defined as companies that meet 2 of the 3 following:
– turnover of not exceeding £10.2 million,
– balance sheet total of not exceeding £5.1 million, and
– no more than 50 employees.
FRS 102 1A requires small companies to prepare more detailed financial statements with increased disclosure requirements. The accounts must be audited, and the company must comply with additional reporting standards.
Case Study:
ABC Ltd is a small limited company based in London which manufactures diffident goods. The company has been trading for three years and has a turnover of £500,000. The directors of ABC Ltd have never filed statutory accounts before and are unsure of their legal obligations.
Harkia Accountants was engaged to prepare and file the company’s statutory accounts because Harkia Chartered accountants are the expert small limited company accountants. The team at Harkia Accountants reviewed the company’s financial records and prepared the accounts under FRS 102 (1A).
The directors were pleased that their year-end statutory accounts and limited company tax return were filed. The directors were very happy with the service provided by Harkia Accountants and felt confident that their legal obligations had been met. The limited company accounts costs were very competitive.
Conclusion:
Statutory accounts are an essential part of running a limited company. Harkia, as a small limited Company Accountants can help clients ensure compliance with their statutory obligations to avoid penalties and fines. By engaging Harkia Accountants, clients can rest assured that their statutory accounts will be prepared accurately and filed on time.
